Best Ways to Invest Money in 2021

Best Ways to Invest Money in 2021

 Don’t fall into the trap of thinking that investing is reserved for the already rich.

Although having more money to play with makes investment simpler and less risky, anyone with a healthy savings account and enough income to set aside a few dollars each month can afford to invest. So don’t ask yourself whether you should get involved — try to figure out the best ways to invest money.

Unfortunately, there’s not a simple answer to that question. We all have drastically different financial goals and mindsets; one person’s foolproof plan is someone else’s recipe for disaster. In the advice that follows, I’ll outline the main factors to consider when starting on your investment journey, along with the best approaches for different situations.

What to Consider First

Most people want to jump straight into figuring out the hottest new investment opportunity, thinking that if they select the latest up-and-coming cryptocurrency or stock that they’ll be guaranteed tidy profits.

But this is the wrong approach — before you even think about what you want to invest in, you should turn your mind toward how you want to invest. New and experienced investors have investing rules for success

Lost? I’ll break things down into five questions you should be asking yourself:

  1. What are your financial goals?
  2. What’s your investment timeframe?
  3. How much risk are you prepared to take on?
  4. Do you want to select your investments yourself?
  5. What type of account is right for you?

Let’s look at each one in turn.

Financial Goals

We’d all like to have more money. But what exactly do you want it for, and how much are you going to need? Knowing the answers to these two questions is the foundation for building a solid financial strategy.

While investing your savings instead of leaving them sitting in a checking account will (almost) never be a bad idea, this method will be less effective if you don’t have a clear picture of what you’re heading toward.

Common financial goals include:

  • College tuition (or the college tuition of your children)
  • Retirement
  • Paying off a mortgage
  • Making a downpayment on a property

As you might have noticed, all the objectives above are longer-term goals that involve some serious saving over multiple years (if not multiple decades).

Although some people save for shorter-term milestones, like a wedding or vacation, investing is generally only recommended if you’re prepared to lock away your money for five years or more. I’ll be assuming most people reading this are in that category.

Next, you’ll need to figure out exactly how much you need to meet your goal(s).

For example, if you’re saving for retirement, start by working out how much annual income you’d need to live off. Many people in the financial independence movement recommend following the 4% rule (multiplying your annual income by 25).

Like mortgages and college tuition, other goals are easier to associate with a number for — but don’t forget to account for inflation. If college tuition costs $20,000 a year now, expect it to be a little more expensive in ten years.

Timeframe

Once you know your financial goals, it should be pretty straightforward to figure out the kind of timeframe you need to be investing over.

If you’re saving for your kids to go to college and the eldest is currently four years old, you’re looking at a time frame of 14 years. Or, if you’re 30 years old and saving for retirement, expect a horizon of roughly 35 years (assuming you want to retire at the “normal” age).

You get the gist.

Risk

The timeframe you decide on is one of the greatest determinants of how much risk you should take. For example, investing $100 in Bitcoin or Tesla shares is pretty risky if you know you’ll need to use that money in two weeks — maybe the market will just so happen to be experiencing a dip at that point, meaning you’ll lose money.

Take a look at the price chart of any stock, crypto, or currency pair, and you’ll know how volatile prices can be in the short term.

But if you know that you’re in it for the long haul and won’t need the money for a few decades, you can be reasonably confident that your investments rise in value by the time you withdraw them.

Naturally, there’s always a chance that a company could go under or lose value — that’s where diversification, research, and some thought about your risk tolerance come in.

If you invest all your money in a single company or asset, there’s far more risk involved than if you spread it across multiple companies or assets.

Then there are the investments that are inherently riskier than others. For example, pouring your money into a brand-new company or a new asset class like cryptocurrencies involves far more risk involved than putting your trust in a “safe pair of hands,” such as the Googles and Amazons of the world.

Anything with inherent value, like real estate in a desirable area, is also a decent option.

Still, risky investments aren’t necessarily a no-go — you need to make sure you’re going into them knowing and accepting their riskiness.

Investment Selection

You might be thinking, haven’t I already covered investment selection in the paragraph above? Not quite — investment selection here is all about deciding whether you want to handpick your investments or pass that responsibility onto someone else.

If you’re new to investing, you might find the idea of enlisting a professional to help you select your investments more appealing than having to do everything yourself. However, while this can be a good option, it comes with a fee — portfolio managers charge a management fee, which eats into your returns, especially if you’re only investing a modest amount.

But if you’ve never invested before, you probably don’t even know what you don’t know — how can you hope to pick the right platform, never mind the right assets and products?

Fortunately, there’s a third option: using a Robo-advisor. Many platforms and apps have launched special software and applications that guide investors through selecting and managing their portfolios. The sophisticated algorithms bring suggestions that rival actual asset managers.

Some will take users through a quiz with questions about their risk tolerance, financial goals, and similar; others provide tools for automatic investing and rounding up spare change to make investing effortless.

Account type

Figuring out what you want to invest in is just the first step — you also need to know exactly how you’re going to do it. Or, in other words, which account type you’ll open and on which platform.

In the US, common investment accounts include:

  • 401(k): A tax-efficient retirement plan allowing employees to save part of their paycheck, often involving matched contributions from employers.
  • Traditional IRA: An account that lets you contribute after-tax money and withdraw it tax-free (along with the extra earnings) at retirement age.
  • Roth IRA: An account lets you contribute pre-tax money and pay tax when you withdraw it at retirement age.

Tax-effective investment accounts and pension plans exist in many other countries, but they’re likely to have different names and involve slightly different rules. For instance, the UK offers individual savings accounts (ISAs), which allow individuals to save up to a set threshold each year and later withdraw the funds they’ve accumulated tax-free.

You might also want to consider accounts for specific savings goals, such as an account for saving for college (known as a 529 account in the US) — these can offer special perks.  

Best investments in 2021

Now you’ve given plenty of thought to the questions outlined above. It’s time to get on to the juicy part of the article — selecting suitable investments.

There’s not a single correct answer here since the right investments for you will depend on your answers to the questions outlined above — that’s why I’ve highlighted who each of the investment types below is most suitable for. Let’s go!

Stocks

Best for: Longer timeframes and higher risks for higher returns.

When you buy a stock, you essentially become a shareholder (or owner) of that business — so whenever the company increases in value, your investment will also rise in price.

You only have to look at how much some of the most successful stocks have grown over the last few decades to see how profitable this can be. For instance, if you’d invested in a Google stock back in July 2016, its value would have jumped from $719.85 to $2585.72 — an increase of around 259.2%.

That’s a whole lot better than stowing it away in your savings account and even better than investing in the S&P 500 (which achieved a return of around 100% over the same period).

Source: https://finance.yahoo.com/quote/GOOG/

Yet, although stocks can be a path to mouthwatering returns, they can also end in tears. If you purchase shares in a company that happens to go under, you’ll lose your entire investment. And even if a firm doesn’t go out of business entirely, it could lose a lot of its value, even over the long term — industry trends, technology, and customer opinion can suddenly render a profitable business less than desirable.

This isn’t likely with a business as dominant as Google, but there’s no way of knowing for sure what’s going to happen tomorrow.

Luckily, there’s a solution.

Mutual Funds

Best for: Longer timeframes and lower risk.

If you like the sound of the returns and liquidity that stocks can bring but not the high risk and the need to handpick your investments, I’ve got great news: you can opt for a fund instead. Funds let you invest in a mix of different company stocks, therefore offering increased diversification.

They don’t tend to achieve the same level of returns as the highest-performing stocks — but they’re far less risky.

While it’s reasonably likely that a single company could face tough times, it’s far less likely that thousands of companies will experience these same difficulties (other than during recessions, but these are a natural part of the economic cycle and nothing to be scared of).

There will be some high-performers and some low-performers (or non-performers) in any fund, but on average, you’ll still get good investment returns. As long as you’re willing to invest for long enough, that is.

The main types of funds available to investors are:

  • Mutual funds: Contain a selection of bonds, stocks, and other assets (e.g., real estate or commodities) picked by asset managers and pooled together with other investors’ money. Traded at the end of the day.
  • Index funds: Contain an index, like the S&P 500 or the FTSE 100, and are traded throughout the day (just like stocks).
  • ETFs: Contain an index but are traded at the end of the day, just like mutual funds.

The differences between these are subtle but worth noting. For those who want less risky exposure, consider a fund of dividend growth stocks or dividend aristocrats as the yield often anchors the investment.

Bonds

Best for: Shorter timeframes and lower risk.

Although I said I’ll focus on investment strategies for longer timeframes and goals, an article about the best investments wouldn’t be complete without giving an honorable mention to a top short-term investment option: bonds.

Bonds are essentially loans, with the borrowers usually being the government or large companies. Because of who you’re lending to, the risk associated with bonds is low, yet this also means that the returns are lower than other types of assets.

The exact returns you can expect depend on the type of bonds you opt for and who the borrowers are — some bonds are unable even to beat inflation, while others can earn up to 5%.

Bonds are often used in funds to hedge against risk since they’re less affected by the stock market swings.

However, if you want to invest over a larger time period, it’s generally agreed that the benefits of investing in bonds are minimal. If you know you’re not going to access your funds within the next few years, the cons of low returns will outweigh the benefits of increased security.

Real estate

Best for: Portfolio diversification and stable returns.

I want to address something right away. Although I just said that real estate offers stable returns, this isn’t true all of the time. Properties have inherent value — people will always need somewhere to live — so their prices will generally increase over time.

But real estate doesn’t always match the returns seen in assets like stocks, and if you choose the wrong property location, you could fail to achieve much of a return at all. However, as a big advocate myself, I wanted to explain why it can be such a great option.

For one, the gains can beat the stock market if you choose the right area. Just look at how much property prices in London have increased over the last few decades!

Source: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/january2021

If you purchase a property and then rent it out to others, it can also be a great way to generate income and make your money work for you — you can use your investment to finance even more investments by using rent payments toward the future down payment.

Still, money invested in real estate is less liquid than anything in the stock market. It carries some serious risk — you might have issues with tenants or face expensive maintenance operations, for instance.

Cryptocurrencies

Best for: High risk and high returns.

Last but least, we have cryptocurrencies. This certainly isn’t an option for the faint-hearted — it’s no secret that the crypto market is somewhat wild, and you need a clear strategy for the price swings. Just look at how much the value of Bitcoin has fluctuated in the last year alone.

Source: https://finance.yahoo.com/quote/BTC-USD/chart/

But if you’re prepared to take on some risk to earn higher returns — often even higher than anything you could achieve from investing in stocks — then the world of crypto is the way to go. For example, if you’d bought into Bitcoin five years ago, you’d have achieved a return of 5144.33% by now — and the coin is currently way below its all-time high.

Just be prepared to do some serious research before you start investing in this one. Following the crowd could lead you to buy into a bubble at the wrong time, whereas buying niche coins at random could involve you in a scam (the crypto world is unregulated for the most part).

Beware!

It’s Decision Time

As you should realize by now, choosing the best investment vehicle(s) for you is a personal decision. For example, some people are happy to accept significant risk by investing in specific stocks or cryptocurrencies. In contrast, others would prefer to sleep at night knowing their money is (relatively) safely locked away in index funds or property.

I’d recommend doing a mixture of all the above. It’s good personal finance practice to have a good amount of liquid cash at hand, and it’s safest to invest the rest of your funds across a range of assets or investment types. Why not invest the bulk of it in something safer like an index fund but allocate a smaller percentage to something riskier with higher potential returns, like crypto or individual stocks?

Final Thoughts

Whether that idea fills you with boredom, fear, or excitement will say a lot about your risk preferences and what your next step should be.

This post originally appeared on Your Money Geek.

 

Here Are 40 of the Best Ways To Make Extra Money

Here Are 40 of the Best Ways To Make Extra Money

Want to put extra cash in your pocket?

You can find ways to make extra money on the side that can be lucrative and fun. All you need to make extra money is an open mind, motivation, grit, and determination to use your creativity and skills you may already have or can grow. Find a need you see and can fill it. You can do a side hustle in your free time to make extra money legitimately:

  • working from home and online
  • using a car or a house
  • getting additional training or certification
  • in your spare time

40 Ways To Make Extra Money

1. Drive For Uber or Lyft

Have spare time? You can drive for ride-sharing services like Uber or Lyft. There are a few requirements like having a driver’s license and meeting the minimum age requirement in your chosen area. You can make $100 a day for a six-hour shift, though if you hustle (safely), your pay can go to $500 a day.

They will review your background, including your driving record, for safety purposes. You will need a four-door car, preferably not a 20-year-old model, have insurance and registration. If you don’t have a suitable vehicle, you may rent one from these companies.

2. Wrap Advertisements On Your Car

Speaking of cars, have you thought about using this asset to advertise for well-known brands? You can earn $200 per month without having to change your daily schedule just by having vinyl decals on your car that you can easily remove. Wrap advertising companies calculate your typical driving routes.

They look for newer cars and daily commutes of 30 miles per day. The denser the traffic, the more you can earn. However, some municipalities have restricted this practice, so check your area.

This type of marketing has been around since 1993 when a Pepsi Crystal product appeared on a wrapped bus. Several companies are in this space, including Wrapify, Nickelytics, and Havas Media, part of the global Havas Group.

3. Food/Groceries Delivery Services

In combination with the ride-sharing companies, or on your own, you can participate in delivering prepared meals, groceries, or other things while you are on your way to a destination. We live busy lives and make tradeoffs between time and money. The demand for ordering delivery jumped significantly during the pandemic and remains strong.

In the prepared food delivery services, the success of Uber Eats, DoorDash, Postmates, GrubHub has been astronomical. If your car is too old to drive for Uber, you can still use your car for Uber Eats to deliver food or go by scooter, bicycle, or foot. You can make $8-12 per hour plus tips.

The delivery of grocery shopping got a similar boost, benefiting companies like Instacart, Shipt, and FreshDirect. A more recent entry to the delivery of meals is Amazon Fresh.

4. Become A Roadie

You can get paid for delivering packages that are already on your way to the other side of town, a different city, or across the country by becoming a Roadie. Your compensation for a local dropoff ranges up to $60, while long-haul deliveries could be as high as $650. Imagine taking your kid to college by car and arranging deliveries in both directions. You decide on how you want to participate with Roadie.

5. Hire A Chef

Can you cook with flair and enjoy doing so? People like hiring skilled personal chefs for special events or long-term culinary needs. There may be education requirements for being a private or persona chef who can differ from who your clients are. If you are cooking meals for a particular person or family once in a while, it may be a less formal arrangement.

Hiring a chef may be for varying purposes such as nutrition, elderly or ill, parties, or in-home eating for busy people. Hourly rates are about $30-$40 per hour. However, charges vary by person for large parties.

On the other hand, clients may call on you to have a broad repertoire. You may need to show evidence of your cooking ability, culinary training, and certification. You list zip codes or areas you can provide services on sites like Hire A Chef.

6. Tutor Online or In Person

Do you have a passion for teaching and want flexibility? Become a tutor online or in person and share your knowledge. Select your hours and subject of expertise for the ACT or SAT, or graduate exams. Consider tutoring privately or classes. It can be a seasonal or all-year-round gig.

There are education requirements, with high school completion as the minimum. Typical hourly pay of $30 or higher will depend on the subject, with a more challenging curriculum like math getting higher demand and pay.  A few companies to consider working for: The Tutoring Company, Tutor.com, and TutorMe.

7. Private Coaching

Becoming a coach can be very rewarding. Coaching is a service you provide to help transform themselves in a part of their lives. It is a form of mentoring, not counseling, though some training in the area of your expertise can be helpful. Private coaches are in demand in various sports, either one-to-one, teams, or in groups. Parents are willing to pay for extra help for the kids or adults who want a running or tennis partner to get stronger.

You can either work freelance as a coach with a large gym, schools or work for companies like CoachUp, CoachNow, or TeamPro that can help you build your portfolio for one-time fees and a small percentage of your pay. Besides sports coaching, you can be a finance or life coach. 

8. Answer Surveys

There are several ways you can make cash, get gift cards, coupons, earn redeemable points or rewards by answering surveys and participating in polls. It is easy to sign up and contribute your opinions on market research, brands and watch movie trailers in your free time. It is easy to participate, earn some money (it won’t be significant), and learn something new.

Here are the more established names:

  • Swagbucks
  • Branded Surveys
  • Survey Junkie
  • InBoxDollars
  • Life Points,(originally National Family Opinion)
  • VolKno (video trailers)
  • Pinecone Research

9. Participate In A Research Study

Medical research is essential to finding new drugs, remedies, and dietary supplements, but they have to go through many clinical trials. Teaching hospitals, clinics, biotech companies, and research organizations seek people who will participate in their studies for paid opportunities that can be $1,000 or more. You can check local hospitals or clinics in your area, like ResearchMatch.org, Covance, or ClinicalTrials.gov. Kessler Foundation does survey questionnaires.

10. Taste Tester

Want to make some cash or gift cards in your free time, be a taste tester and have some fun.  You can work for companies, such as Schwan’s Food Company, who may deliver their food to your home, and in less than 15 minutes, you can make $15. Several market research firms can contact to taste varying products, including PVR Research, CMR Research, Discuss Research, and Contract Testing Inc. Besides food testing, there may be smell testing.

11. Teaching A Language Online

Being bilingual is a great skill in life and can be profitable in our global world. There is a tremendous demand for teaching languages to children and adults online as professional teachers or community tutors across the globe. Requirements vary, but reliable technology is essential.

Knowledge of reading and writing in more than one language and a college diploma are a plus. Hourly pay ranges from $8-$30 per hour, with the higher amount associated with more excellent proficiency and experience. You can teach a language from anywhere.

These companies are looking for those with language expertise:

  • Verbling
  • VerbalPlanet
  • VIPKid
  • iTalki

Teaching a language should strengthen your skills and may open doors to more opportunities. There is substantial demand for translators and interpreters with higher pay per hour of $20 or more depending on the specific language.

12. Become A Drone Pilot

This choice is a fascinating way to make extra money if you own a drone. To become a drone pilot, you will need training  (DroneU, ABJ Drone Academy, or Pilot Institute) and FAA certification. Freelance drone pilots can do aerial inspections for utility companies, aerial surveying for real estate companies, or social events like weddings, travel, and hotels that want to show their grounds. You likely would need insurance.

Although there are some upfront costs (e.g., drone, training, insurance), you could do this kind of work on a part-time basis. Your compensation varies by the company or group you may be working for $500-$600 per week is not out of the question.

13. Earn Money Working For Amazon

Did you see the movie Nomadland with Francis McDormand? Her character, Fern, works as part of Amazon’s “Camper Force’s” temporary workforce. Amazon offers sign-on bonuses of up to $1,000 and $20 an hour to work in their workforce. The vast majority of Amazon’s 1.3+ million employees have hours that work for them. Part-timers get the same benefits as full-time employees. Amazon has other opportunities, notably:

Amazon Flex encourages you to use your car to make deliveries for $18-$25 per hour, depending on the location.

Amazon Fresh is its grocery delivery of fresh food.

Amazon Mechanical Turk (MTurk) is an online crowdsourcing marketplace. You can become an MTurk employee in your spare time and be part of their global on-demand workforce.

Suppose you have spare time and want to work at MTurk from home. In that case, you can apply your skills to research data processing, data verification and details, image/video processing,  transcribe audio recordings, and information gathering.  A lot of the work deals with tedious data gathering of completed surveys and polls. The hourly pay varies from low single digits to $16 per hour depending on the task, plus some jobs pay bonuses.

14. Become A Local Guide

If you have specialized knowledge, speak in more than one language, and are passionate about the area you live in, you can become a local guide. People enjoy learning about things off the beaten path from the typical tourist stops. The guides are usually experts in  nature, history, food, wine, or cemeteries.  People will pay up for a quality tour, plus tips. You can freelance or list on Rent A Local Friend or Traveling Spoon.

15. Become A Hair & Makeup Artist

There is high demand for people who can do hair and makeup in their homes for special occasions, work events, parties, including weddings, and bar/bat mitzvahs. This freelance job is a lucrative field for those with talent and flexible schedules. If you have the flexibility to do the work at odd hours like six AM, during weekends or holidays, you can earn $150-$600 or more for this job. You may need some training to learn about different styles and cosmetics.

16. Become A Photographer

Do you enjoy photography as a hobby? Why not take it to the next step and pursue what you love doing, whether portraits, family photography, travel, sports, nature, stock photographs, or candid photography. Sell your photos online or to respective companies that specialize in your area of expertise. Consider listing on Fine Art America or stock photo sites like Getty Images or Shutterstock.

17. Become A Tasker With TaskRabbit

Are you handy with hands and have some flexibility? There is a task waiting for you on TaskRabbit, and they will pay you a generous hourly rate, depending on the job and location. Can you wait in line to get tickets for a show in NYC? They will pay you $43 per hour. TaskRabbit takes a 15% cut of your pay before tips for popular tasks such as deliveries, handyman, TV mounting, hanging pictures, moving, and furniture assembly.

Next Door, a neighborhood community version, posts similar tasks..

18. Freelance Writing

Do you enjoy writing? If you write well, you may want to consider doing it on a freelance basis. You want to consider a desirable niche that works for you. It takes time to develop your niche, writing skills, and voice.

There are many ways to land some writing jobs online. It is easier if you have a professional blog so that you can point to your work. However, you can start by doing cold pitches and contact editors online. When you’re new to freelance writing, check the job board for freelance writers,  and ask around if you can guest post.

19. Become A Blogger

Like a freelance writer, if you are interested in blogging, you need to find your niche. Earning money from a blog takes a longer time than many other areas suggested in this article. There are some upfront costs like building and designing your website and hosting.

You can go at your own pace in building a following and traffic before you can earn money from ads, affiliated marketing, sponsored posts, selling courses, and other products. Think of blogging as a longer-term proposition to potentially make a living on a flexible schedule.

20. Repair Electronics

Like fiddling with computers and smartphones? You will be in demand by folks like me who don’t know what is wrong with their electronics. This kind of work can be done locally on your schedule when you are free. The compensation for repairing electronics varies in the $15-$20 per hour range.

21. Selling Spare Electronics

Somewhat related to repairing electronics is selling spare, used, or unused electronics such as iPads, media players, smartphones, printers, cameras, or headphones. The parts from these devices are valuable and profitable. You can contact several companies for selling your electronics, notably BuyBack World, Sellcell.com, Decluttr, Swappa, Gazelle, and Facebook Marketplace. You can trade-in your electronics for cash, and these companies will refurbish and sell certified pre-owned.

22. Sell Your Used Items On Craigslist or eBay

You can sell used items like electronics, appliances, and furniture online. Craigslist is more like an online community board, with most advertisements being free. eBay has various fees, and you will pay a percentage of the final value to them.

23. Sell Your Crafts As An Online Storeowner

It has become much easier to sell your crafts and unique goods to a seemingly boundless market in recent years. These online marketplaces may charge listing, transaction, and payment processing fees, so you will need to check each company. The best-known companies are:

  • Etsy
  • Shopify
  • Big Cartel
  • Zibbet
  • IndieMade
  • ArtFire
  • Handmade at Amazon

24. Selling Your Professional Services Online

There are expanding platforms to sell your professional services as freelancers. Among the places, you can list your services and bid for jobs are Fiverr, Upwork, and 99 Designs. You can name your price starting at $5, give your experience, and how you work. Among the services you can offer:

  • Graphics & Design
  • Digital, Email and Social Media Marketing
  • Web Development
  • Writing & Translation
  • Videos & Animation
  • Music & Audio

25. Sell Unused Gift Cards

Do you have some gift cards in a drawer? I do too. Legally, gift cards cannot expire in less than five years after the purchase price, but you may incur fees for inactivity. You should use your gift cards as soon as you can so you get the total value. Sometimes you may get a gift card from a well-meaning friend who wants you to try out her favorite place that you have little interest in shopping there.

Instead, sell your unused gift cards for up to 80% of their value on Raise, CardCash, Cash Star, among others.

26. Become A Mystery Shopper

Do you like to shop? Marketing research companies will hire mystery shoppers to buy items in retail stores, eat at restaurants, and ask salespeople and customer service questions. They provide a detailed account of their experiences. These companies engage in these shoppers to collect valuable data to measure sales and service quality and understand the market, including its competitors.

The mystery shoppers have to buy the products, but they usually receive reimbursment for their expenses or purchases. The companies pay a flat amount for their assignment, which can go up to $50-$100, or provide them with discounts. You can become a mystery shopper with BestMark, the first and largest mystery shopping measurement company. Others are Market Force, IntelliShop, and Second to None.

27. Get Cash Back From Shopping Apps

You can earn cash back, coupons, rewards, or points, from your home online using shopping apps. Ibotta is one of the better-known free mobile apps that gives you rebates for varying grocery items. You find more cash back apps that are as easy to use once you download them. They are Shopkick, Fetch Awards, Checkout 51, Dosh, Coupon.com, and NCPMobile.

28. Become A Virtual Assistant

A virtual assistant is a contractor who works remotely, provides general administrative support by performing varying tasks: email management, content creation, bookkeeping, scheduling, graphic design, social media, copyrighting, and e-commerce. According to Payscale, you can earn $10.16 to $29.49 per hour. More experienced VAs can earn higher rates of $50 or more.

Outsourcing to a virtual assistant has been in demand by online businesses and entrepreneurs in recent years. You can list with Fiverr, UpWork, VaNetworking.com, oDesk, Linkedin, and Indeed.

29. Social Media Manager

Social media marketing is exploding. Over 3.6 billion people were on social media sites in 2020. The growth of social media commands companies to master engagement with consumers on various sites. However, social media management is not just for large companies, as small businesses need this exposure to grow.

Social media managers are essential in developing campaigns, managing digital marketing and analytics, helping their clients grow their businesses. Social media hone their skills to create engaging content that can convert followers into loyal customers. The managers spend time monitoring and measuring the social media presence of a product, brand, company, or even an individual. Upwork shows social media managers making $12-$35 per hour, but the more experienced managers can make $50.

30. Participate In Focus Groups

Market researchers rely on consumers to participate in focus groups to retrieve invaluable opinions on new and existing products and services. You can participate one-to-one by phone, zoom, in a small group that meets in person or online. Each focus group will be different. Your compensation could be on an hourly basis ranging from $50-$150 or per research session. Groups typically meet for an hour or two. For those who have flexible schedules, this can be a lucrative gig for studies paying $400 per hour.

Here are recommended focus groups given their ratings:

  • User Interviews
  • Respondent.io
  • Recruit and Field
  • FocusGroup.com
  • Probe Market Research

31. Sell Unused Clothes

Have an eye for fashion but still have tags on your clothes? There’s a market for that. You can sell your unused clothes on several sites that may give you up to 80% of the cost of the item. Some will take a small commission.

Places you can tap to sell your clothing are:

  • ThredUp (easy to deal with)
  • Poshmark (original reseller)
  • The Real Real (luxury)
  • Etsy (takes 3% commission)
  • eBay
  • Depop
  • Facebook Marketplace

 

32. Sell Baby Gear

Have baby clothes that are either gently used or with tags on them that you would like to sell? Listing on Kidizen is free, but they take a percentage of your selling price on various items. You can sell maternity clothes, bags, and children’s books as well. Alternatives to Kidizen, are OfferUp, and Letgo, used goods marketplaces recently merged, have an app.

33. Closet or Home Organizer

Want to organize someone’s closet or drawers professionally? If you know how to declutter someone’s home or closets, there is a job for you in this market. If you have these skills, you can make hourly rates of $20 or more, or it can sell as a package deal such as sorting out someone’s garage or basement for $250-$300 or more.

It depends on the specific needs, such as going through someone’s papers to find essential documents, redoing an entire closet or room. People often hire others for this task because of the emotional baggage, especially when a loved one has passed away.

34. Become A House Sitter or Watcher

When people take vacations or travel for work, they will consider hiring a house sitter. Owners worried about burglaries seek security and peace of mind. Professional house-sitters may water plants, collect mail, take out the trash, and do pet care. They can earn $25-$45+ per hour depending on the location. House sitters may do short overnight stays or longer stays.

It is essential to the owner to trust someone temporarily residing in your home, taking care of beloved pets or plants. They will want a background check. You can register with organizations such as TrustedHouseSitter.com or HousesittersAmerica.com, where reviews and verification are helpful for prospective customers.  When pet sitting is the primary function, you can hire a pet sitter (see below).

A house or property watcher is different than a house sitter. The person may monitor the home a few times during the week. They look for disturbances, leaks and checks the temperature inside the house to avoid burst pipes or boiler problems. This job can be seasonal when areas are primarily for summer or winter homes. The house watcher’s pay is likely weekly and provides relatively less compensation than a house sitter, but they can do more houses in total.

35. Become A Pet Sitter

We love our pets and will do almost everything to keep them comfortable when we are away. When pet sitting is the primary concern, owners will seek out experienced pet sitters to take care of their pets by feeding, walking, and paying attention to them. Let’s face it, we love these essential family members and want to avoid the kennels but. We also want to travel without guilt.

Pet sitters can be paid per hour or daily, for visiting the pets during the day or staying overnight either in the person’s home or your home. Professional sitters may have several pets in your home at a time. The house-sitting organizations mentioned above do pet sitting as well.

Pet sitting can vary from $15-$50 per hour. We paid $65 per day plus tips for a pet sitter who happened to be our dog walker. He stayed overnight, feeding, walking, and caring for our dog.

36. Become A Host Ambassador With Airbnb

Do you have a property that you don’t use all the time? You might want to consider hosting or renting your property through Airbnb anywhere in the world for short- or long-term stays. They make arrangements, provide insurance for potential damage, and support services.

The average host makes about $924 per month. Amounts will go higher if your property is in a desirable market, such as San Jose, California, where a four-bedroom house may command $3,000 a week. Be aware that there may be upfront costs if you need to redecorate your home to make it suitable for renters. Besides Airbnb, there are alternatives like Vrbo and VacRentals by Owners.

37. Rent Your Car With Turo

Airbnb is so popular that it has become a verb, as is Airbnb your car by becoming a host and renting your car. You can do so through Turo, the largest car-sharing marketplace. The company website says you can make as much as $10,516 annually by renting one car. Turo’s US requirements include having a clean title, registration in any state (except New York), meet their insurance requirements, have fewer than 130,000 miles, and a fair market value capped at $150,000.

38. Become A Caregiver

Do you have a passion for taking care of others and earning some extra money?

Caregiving looks after a child (e.g., babysitter), a sick, elderly, or disabled person, and is in high demand. It can be for hours a day or evening or regularly, requiring different skills. When caring for children, the hourly pay averages about $17.50 (over $20 in New York and other cities). However, the payment will be higher if you are preparing meals or helping them with their homework.

Caregivers help adults with their day-to-day needs. That could range from keeping them company, monitoring, helping them with their mobility, medication, hygiene, grocery shopping/meal prep, run errands, pick up a prescription, and doctor visits. These professionals may need CPR certification or other training to administer drugs and physical therapy. Caregivers make from about $10-$20+ per hour, depending on their skills.

Background checks, whether for a caregiver for a child or adult in need, are likely. When our kids were young, we needed caregivers often and for our elderly parents. Care.com is an excellent resource to find the right person and a good way to land jobs based on your availability.

39. Money-Saving Measures

I can point to a few legit low-risk, high return strategies if you are looking to generate income generation that will benefit your pocket.

  • Refinancing your mortgage may produce savings, net of fees. 
  • Paying off high-cost credit card debt and don’t carry balances.
  •  Reduce or eliminate other consumer loans if you can refinance loans at lower rates.
  • Improving your credit scores ahead of planned borrowing may produce some savings.
  • Seek out learning new skills or training that can bump their salary.
  • Ask for a raise.

40. Invest Money In Dividend Growth Stocks

If you put some portion of your investments into dividend growth stocks with above-average yields, you can raise your income. For example, a $500,000 investment in 4% yielding stocks will provide $20,000 in annual pretax income. A $2.5 million portfolio in dividend stocks paying 4% yields equates to $100,000 in yearly income. At a more reasonable 3% yield, annual income would be $75,000 income.

Final Thoughts

There are many ways to earn extra money, save, pay down debt, or build your investment portfolio. Consider your skills, interest, and time to spare to find a suitable way to make extra money and build your path to wealth. 

Thank you for reading! Visit The Cents of Money for more articles of interest.

This article was published first on SavoTeur and published with permission. 

 

 

 

 

 

 

 

 

 

 

 

Pros and Cons of Universal Basic Income

Pros and Cons of Universal Basic Income

Universal basic income, or UBI, is a modern-day concept under which the government distributes cash payments to all. This concept has been around since Thomas More proposed a basic income to everyone in Utopia, written nearly 500 years. Once a radical plan, UBI has many advocates from the political left and right in the US and globally. The  Advance Child Tax Credit Payments in 2021 may be the best example of Universal Basic Income.

From Thomas More to now, many people, from Thomas Paine to Andrew Yang, have been closely associated with UBI in various forms.

Two historical efforts of universal basic income stand out.

“The Freedom Budget For All Americans”

Dr. Martin Luther King Jr. worked with A Philip Randolph and 200 prominent economists on “The Freedom Budget For All Americans,”  which advanced as a published document in 1967. This ambitious step-by-step plan’s primary goal was to stamp out poverty over the next ten years.

The program would raise higher Federal income taxes of $200 (1967 dollars), a portion to create jobs. As such, there would be a job guaranteed to everyone ready and willing to work. Alternatively, those who couldn’t work would receive guaranteed income to lift them out of poverty. The plan was estimated to cost $185 billion (not a typo) over ten years.

The plan outlined seven goals: providing and sustaining employment with full production and high economic growth; decent and adequate wages; decent living standard; wipe out slum ghettos; proper medical care and educational opportunities; and purify air and water.

The Freedom Budget had significant merit, but it lost substantial momentum after MLK’s assassination in 1968. In recent years, this concrete guaranteed income model had received new attention.

Nixon’s Family Assistance Plan

In 1969, President Nixon proposed a Family Assistance Plan that guaranteed families of four would receive $1,600 ($10,000 in 2016 dollars) annually in household income, still below the average of $7,400 at that time. The plan required “suitable” work or training for the head of the family.  By the way, Richard Nixon would not necessarily be the President to consider such a program. However, he followed President Johnson, who initiated the “War on Poverty.”

Nixon set a trial with 8,500 Americans in several states, notably New Jersey, Pennsylvania, Iowa, North Carolina, and Indiana. The study would be among the first guaranteed income pilots with experimental and control groups. Nixon was motivated to do this plan to garner blue-collar votes in the 1972 election. Nixon’s program resulted in proposed laws and revisions, but political pressures hurt, and Watergate killed any hopes of legislation in Nixon’s second term.

I found a great article that provides more insight into Nixon’s plan and what happened behind the scenes here.

The 2021 Advance Child Tax Credit: An Example of Universal Basic Income? 

Interest in universal basic income has increased. Indeed, the child tax credit may be an example of decreasing income inequality. Black families are in poverty disproportionately. Rather than a credit to deduct against income, the IRS will pay half the total credit amount in advance monthly payments to many families beginning July 2021. Families can then claim the other half when they file their 2021 tax returns.

The child tax credits are an effort to decreasing child poverty in the US, with 39 million families and 65 million children receiving money directly deposited into bank accounts. The IRS will send out monthly payments of $300 for children under six years and $250 per month for children between ages six and 17. There will be six payments in 2021 and one payment in 2022 for each child in the household.

Families will receive up to $3,600 per child under age six (or $3,000 for six-17 years) well above the $2,000 per child, ages 0-16). The credit begins to decrease at certain income levels ($112,500 of income for single parents and $150,000 for married couples).

The child tax credits are being distributed to families in need based on capped income levels. It remains to be seen whether these will be a one-time event or an ongoing tax change. The IRS simply says “These changes apply to tax year 2021 only.” At the very least, we hope it will be a positive event for families in need.

Reasons For Universal Basic Income

 

Income Inequality

Income inequality has been on the rise over the past decades. The highest-earning 20% of US households have steadily brought in a larger share of the country’s income. The US ranks highest in income inequality of all G7 nations, according to the OECD.

Wealth Gap

The net worth or wealth gap between America’s wealthiest and more impoverished families has more than doubled from 1989 to 2016. At the same time, middle-class incomes have grown at a slower rate and represent a slower group. The rich are getting richer, the middle-class is shrinking, and the wealth gap is growing.

Poverty

The poverty rate in 2019 was 10.5%, or 34 million in the US. This rate was the lowest since 1959 and had been on the decline for the past few years. However, looks can be deceiving as Blacks (18.8%) and Hispanics (15.7%) were far higher. The poverty level was $26,172 for a  family of four.

The Pandemic Effects

The coronavirus pandemic caused a severe economic downturn with high unemployment, which remains at high levels. Any improvements in poverty rates quickly reversed. Researchers headed by Zachary Parolin found monthly poverty rates rose to a high of 17.3% in August 2020. That rate would have been higher if not for the CARES Act, which provided essential financial support to those in need.

Automation May Displace Workers

There have been rising worries that artificial intelligence and robotics can displace workers in the future. As many as one-third of the US workforce may have jobs susceptible to automation and need new skills and retraining.

What Is Universal Basic Income?

Universal basic income or UBI is, in theory, a government program that distributes periodic cash payments to all citizens without conditions or strings attached. There have been various pilot programs in the US and other countries. However, there is no permanent program implemented as of yet. Once thought radical, its idea is less farfetched as a potential replacement for other social programs. Even President Nixon came close to developing a UBI-like plan.

There have been disagreements as to the components of Universal basic income.

To All Or Only Those In Need

Distribution of basic income universally would mean everyone, including the wealthy, would be getting cash payments or only those in need? What income level should the cutoff be?

Should distribution be aimed at an individual or a household and include the same amount for minors? The CARES Act implemented a government financial support program for those facing hardship due to the pandemic. The plan used income caps amounts to moderate financial support levels. Also,  families received additional amounts for children under 18 years.

How Much Money Would People Receive?

Income estimates have ranged from $1,000 to $5,000 per month. The essential question is whether this goes to everyone or those in most need, and it would be ongoing, or until that person gets a stable job.

One of the greatest fears opponents of UBI point to is whether those who receive guaranteed income will have enough incentives to work. It is a fundamental question and may drive the stipend distributed to a lower level, so work motivation is not lost. We feel strongly about the virtues of work and how working goes beyond sole compensation.

What Is The Cost And How Would It Be Paid

In recent years, estimated costs ranged from $2.5 trillion to $3 trillion. The pandemic has driven up our budget deficit. Those who are unemployed or own small businesses still need more financial support in the near term. Of course, to figure out what UBI would depend on a few factors:

How large is the recipient base? Andrew Yang, 2020 Presidential candidate, had worked on a $2.8 trillion plan in which every US citizen would get $1,000 per month (or $12,000 annually). Yang’s plan uses higher taxes and costs savings from reducing an existing government plan to finance the UBI.

Does UBI replace the current welfare social program and other programs, and could there be cost savings? Many point to eliminating the federal welfare program at an annual cost of $1 trillion.

Incentive tax credits or higher taxes for the wealthy and corporations can contribute funds for the program.

Pros of Universal Basic Income

 

Fulfill Basic Needs, Reduce Poverty And Gaps

Universal basic income aims to provide money to people with more significant difficulties in covering the basic needs of food, shelter, clothing, and healthcare. Over time, UBI can make inroads to reducing poverty, narrowing income and wealth disparities. Gender and racial gaps tend to be widest between white men and women of color.

A more level playing field would enhance the workplace, could potentially reduce hiring discrimination and pay gaps. Everyone should have an opportunity to have a good job and financial security, especially those who are poor and don’t have a chance without changing our system.

Stimulate The Economy

When disposable personal income increases, households have more money to either save, invest, or spend. More money in people’s wallets means increased consumption of goods and services. Generally, higher consumer spending would lead to more substantial economic growth.

Increased Standard of Living

The US has a higher standard of living than many countries. However, not all Americans share that same standard. A guaranteed income would help more people to rise to better levels than they are living now.

More Freedom To Make Changes

There may be a more remarkable ability for some people to have the freedom to pursue a different job or career if they can depend on a guaranteed income. Many people work at a job they hate or have non-paid caregiving responsibilities. Getting income would help people make changes without fear rather than feeling stymied at a job they dread. Those who need to take time off to provide caregiving to an aged parent or child can do so more efficiently.

Cons of Universal Basic Income

 

It’s Costly and Complicated

Universal basic income has its merits. It is a simple topic in theory, but its components are very complicated and political. Also, the timing is off. The final tally for the budget deficit in fiscal 2020 exceeded $3 trillion, triple the year-ago amount due to the pandemic needs. Throwing trillions of dollars around as estimates for an uncertain program during a costly pandemic is not a way to get fans for UBI. However, the economy has been stronger in recent months. 

Fear of Handouts Without Incentives To Work

Guaranteeing a basic income to all without requirements reeks of handouts. Many people fear that UBI will increase laziness by reducing motivation to work or spending the guaranteed income on “temptation goods” such as alcohol or drugs. A study by MIT/Harvard programs found “no systemic evidence that cash transfer programs discourage work.”

An 18-month experiment took place with 125 people in Stockton, California, and is still ongoing. They are each receiving $500 per month with no strings attached. The working part or full-time participants are making at or below the median income of $46,000. Instead, the researchers found that people are reasonably spending their guaranteed income on food, clothing, utilities, and car repairs.

Doesn’t Necessarily Abolish The Need For Welfare

There are several pilots ongoing around the world. Without a permanent guaranteed plan in place, there are no results to assess if one plan simply replaces another social program. What are the benchmarks for the success of universal basic income?  On paper, universal basic income sounds like it may guarantee payment indefinitely. Is there accountability for those who are part of the plan and truly no strings attached? My two cents here are that there should be a consideration to add work requirements for those who can.

Final Thoughts

Universal basic income or UBI is controversial. However, it has been gaining attention as gaps in income equality and wealth have widened. It is difficult to assess its merits as a potential government program with more questions than answers. Universal basic or guaranteed income should be piloted, studied, and addressed comprehensively in a serious manner.

 Thank you for reading! Please visit us at The Cents of Money to find more articles of interest.

 

 

 

What Is an LLC? And How Is It Different Than a Corporation?

What Is an LLC? And How Is It Different Than a Corporation?

I know a thing or two about the complexities of launching a new business. As the owner of several businesses in the Los Angeles entertainment industry, I know from experience that you’ll have a quadrillion questions.

Difference Between a Corp and an LLC

 

 

 

 

 

 

 

You should take notes like this dude.

And one of the initial questions you’ll certainly need to ask is, “What is an LLC, and how does it compare to a corp?” Then naturally, your next question will be, “So…which one should I set up?”

Most “movers and shakers” need to pick between establishing a corporation (aka Inc.) or a limited liability company (aka LLC). This can be a tough decision, largely because it’s difficult to understand the differences (let alone which might benefit you more)!

DISCLAIMER: I want to quickly stop and say that I am not a CPA or Attorney. I am an entrepreneur that has started multiple companies and other entities for real estate purposes. So what I write here is what I have learned for myself over the years (much of which was from my CPA and attorney). Before you make your final decision on what to do for your company, please consult your own CPA or attorney!

Now, before we look at some of the more important factors that differentiate the two, let me first answer the question of…

What is an LLC?

An LLC, or limited liability company, is a legal business entity you form to protect your personal assets from liability. It will also establish how your business income is treated come tax time.

It’s not the only business entity that does this, though. It’s one of a handful.

What is a corporation?

The other most common option is a corporation (aka a corp or Inc.). Corporations are another business entity that also provides liability protection. But, they are set up a little differently from an LLC.

They are an entirely separate entity from their owners, who hold ownership through shares (or stock) of the company.

What are the differences between an LLC and a Corp?

These two business entity options have some similarities and, of course, differences. Choosing between the two will depend on your business type and needs and your own liability and tax planning goals.

Ownership

An LLC is typically either owned by one person or a small group of co-founders. But technically, an LLC doesn’t have “owners”; it has “members.”

The governing rules of an LLC are spelled out in an “operating agreement.” Additionally, it’s worth noting that all members can manage the LLC (aka “member-managed”), or one designated member can manage it (aka the “managing member”).

Meanwhile, an Inc. effectively belongs to the people who hold shares in it, and the company management is accountable to those shareholders. Because a corporation is very distinct from its shareholders, a shareholder can sell their stock to someone else, and the company can continue doing business fairly seamlessly.

This is why most private investors will want to have the entity be a corp rather than an LLC. And eventually, if the company grows and goes public, that step will be much easier.

Liability Protection

One reason why making your business an LLC is worthwhile is because, as the name “limited liability company” suggests, it creates a barrier between the business activity and the member’s personal assets from a legal standpoint. Any debts it accrues will not fall to you to repay should it encounter legal issues, for example. (Unless, of course, the debts are personally guaranteed.)

That said, an Inc. pretty much offers the same liability protection that an LLC does, especially for an Inc. owned by one person or spouses. This information comes from my long-time attorney, by the way, so you can rest assured it’s accurate.

In the end, they both will protect you similarly if the company gets sued. However, if you personally get sued, an LLC might be better. Why? If you personally get sued (say from a car accident), and you lose, the suit can take ownership of the stock of your Inc. and consequently control over any assets. Yikes.

Now, if you have an LLC, a winning suitor can’t take ownership of your share of the LLC. They can get a charging order to garnish your income from the LLC, but you can remain in control of what income you get. Bonus for the LLC!

Paperwork

One of the common issues discussed when deciding between an Inc. or LLC is the amount of paperwork hassle you have to undertake.

Generally speaking, LLCs indeed have less paperwork, particularly because it doesn’t have to hold “annual meetings” of the directors and take meeting minutes. It also does not have to issue “stock certificates” to its members.

It’s also true that a single-member LLC doesn’t have to do payroll or even file a tax return (because all profit is taken on the individual owner’s “Schedule C”. Now, that would be beneficial; except that, as you will see below, it comes at a relatively high financial cost.

So, if you make your LLC an S corp to save on taxes, you will have to, in fact, do payroll and file a tax return for the entity. But again, that still does leave the LLC/S corp with fewer paperwork hassles overall.

Tax Treatment

Tax savings used to be the most important deciding factor between an Inc. and an LLC. Oddly, since both can be classified as C corps and S corps for tax purposes, they can be pretty much the same. But let’s take a closer look…

Tax Shelter 58b8df423df78c353c241d1e

 

 

 

 

 

 

 

A little corporate tax humor for ya!

Federal Taxes

Just as independent contractor taxes are applied on the basis that this is personal income, the same status is relevant if you generate income from an LLC as a sole owner. In plain English, a single-member LLC does not have to do a tax return. Instead, the net income goes right on your personal return on the “Schedule C.”

Multi-owner LLCs will be taxed as partnerships, which means the entity does have to file a tax return. However, the net income still passes through directly to the members’ personal return; only it’s in the form of a K1.

In both of these cases, being the profit of the LLC is passed directly onto the members, the entity itself pays no taxes. Thus, this is a so-called “pass-through entity.”

Furthermore, in both cases (specifically of LLCs), those profits that are passed through are subject to “self-employment tax” (of an extra 15%) on the personal return. It’s the same for 1099 income as well. This is very important to note! (More on this below.)

NOTE: K1s are the tax document a company owner will get at the end of the year to represent the income they received from the company. It’s similar to the W2 that an “employee” receives or 1099 that a freelancer would get.

On the other hand, corporations are taxed as if they were an entity in their own right. Revenues gained through sales are considered the equivalent of income earned by individuals.

A  “C” corp earns money, has expenses it deducts, pays federal (and often state tax) on the net income. It does not “pass-through” to the shareholders. That said, you can make an Inc. a pass-through entity by giving it an S corp election (see below).

A tax on profits and dividends will also apply. If you are a shareholder, the dividends, in particular, will be taxed twice since they are not deductible (which is why people often avoid C corps).

This rule encourages owners to inject cash back into the business rather than extracting it as it grows (to avoid this double taxation). In addition, this means that the C corp does not have to pass on the profits if it doesn’t want to. Instead, it can just keep them and reinvest them back into the company.

State Taxes

Now don’t think you are out of the tax woods yet! Your state will want to get its hands on some tax as well, most likely.

There are actually two types of state tax you may run into. First, you have tax on “net profits,” which you would commonly refer to as “income tax.” But again, income tax will only be paid by a C corp (or a non-pass-through entity).

That said, some states also have a “privilege tax” (which can also often be called a “franchise tax” or “minimum business tax”).

The privilege tax is just that. A tax for the privilege of doing business in that state. This tax is often based on the gross revenue of the company, with a minimum amount imposed.

NOTE: The privilege tax percentage may be the same for both LLCs and Inc.’s, but often it’s different…yah! I have found that the privilege taxes imposed on LLCs are often higher than that of INCs. But it varies state by state.

To confuse matters a bit more, most states also require you to file an “annual report” where you update them on any changes (or lack of) that have happened with your entity. Unfortunately, with this report, you usually pay a fee.

In some states, the annual report fee is one-in-the-same as the privilege tax. In others, you may have no privilege tax, but you have an annual fee. To confuse matters more, in some, you have just a privilege tax and no annual fee! Aye, Yai Yai!

Suffice it to say, you should do some investigation on this. You can check out my post about Annual S Corporation Filing Requirements for All 50 States, where I lay much of this out!

S Corp (Tax) Status

At some point, it became possible to give your corporation (which by default is a “C” corp) an “S” corp designation. This basically makes the corp a pass-through entity. But an S corp exists only as a taxation option rather than as a specific type of entity.

Now it’s true that this means all profits are no longer taxed at the corporate level but passed through to the shareholders. HOWEVER, being that in a corporation, the (active) owners are also considered employees, you have to do some amount of payroll for the owners.

The common practice (for single-owner entities) is to give yourself a percentage of your profits in the form of “W2 Salary” and the rest as profits. What that percentage is, you have to figure out with your CPA, of course. But this is also a crucial tax distinction (more on this below).

This practice can also be useful in preventing the full profits of a business from being taxed if you are only taking a small proportion of this as income.

Interestingly, it’s possible for LLCs also to request to be classified as an S corp by the IRS. In the case of an LLC classified as an S corp, the owner is considered an employee (just like in an Inc./S corp).

So rather than simply equating the income and expenses of the organization to personal income on their tax returns (i.e., on their “Schedule C”), they must take part of their profits in the form of a W2 salary.

Effectively, both LLCs and corporations can be classified as S corps if they wish, although there are some restrictions. For example, an S corp cannot have over 75 shareholders, and everyone needs to be a resident within the US.

The CRITICAL Self-Employment Tax Distinction (for an S corp) **VERY IMPORTANT**

Ok, this is one of the MOST IMPORTANT things to know in all of this bologna! A little ways back, I wrote that…

1) An LLC passes through all the profits to the members and then has a 15% “self-employment tax” imposed.

Well, the reason this is the case is that the fed and state want to get some money for social security, medicare, and UI. But being you don’t receive W2 payroll, they don’t collect it through your paycheck. Instead, they collect in the form of a self-employment tax.

2) I also said that an S corp considers the owners “employees,” which requires you to pay yourself via a W2 paycheck…and is therefore taxed via employment taxes.

HERE’S THE THING. With an S corp, you only have to pay yourself “reasonable” compensation in the form of W2. Commonly this is considered to be somewhere between 40-60% of your profits, but it could be more, and it definitely depends on what your CPA advises.

The remainder of your profits come to you from that K1 that I mentioned earlier. BUT, for whatever reason, that K1 income is NOT SUBJECT TO SELF-EMPLOYMENT TAX. Thereby saving you money in taxes!

Here is a tax calculator I made illustrating how the tax savings can potentially work. But again, you do have to check with your CPA to see if you and your business can capture these potential tax savings.

tax calc sm 1

 

 

 

 

 

 

 

This calculator will show you the difference in taxes you will pay when making income as a W2 employee, a 1099 contractor, or as an S corp. Again, it’s just an estimate. Check with your CPA about your specific situation!

Now, if you are interested in getting your hands on this calculator, you can do so by checking out my free course on Incorporating Your Business.

Some other semi-important random points about the entities

  • LLCs can have INC/C corps, INC/S corps, LLC/S corps, LLCs, and people as members.
  • S corps can only have individuals (or a living trust) as a shareholder.
  • S corp can change back to C corp, but you have to wait 10 years to switch again once you do that.
  • Per my CPA: Except for medical write-offs, S corps are usually more tax-favorable.
  • Per my CPA: Statistically, S corps get audited the least of all entities.
  • If you have losses on a C corp, no one benefits, as it does not pass through. However, losses are passed through to the owners for S corps and straight LLCs.
  • Customers are required to send Single-Member LLCs and Partnership LLCs 1099 forms. But, they don’t have to send 1099 to an INC/C corp, INC/S corp, or an LLC/S corp. You are on the honor system for those entities in terms of reporting your income to the IRS.

Which is right for you?

For small businesses, becoming an LLC (with an S corp election) could be the best option, particularly if the organization is small and is aiming to minimize the complexity of its tax affairs while still protecting the owners from unwanted legal ramifications.

But again, you should double-check the state-based taxes for LLCs before going that route. I personally feel that the INC/S corp is the best way to go for individual owners or spouses. That’s what I do, but I can’t tell you what to do. You have to decide for yourself.

Growing firms with several owners who are looking at the option of becoming a corporation, but do not want to commit to being a fully-fledged C corp, should consider the advantages of S corp status. You can even go back to being a C corp if you need to.

This post originally appeared on Your Money Geek with their permission.

Thanks for reading! Please visit The Cents of Money for more articles of interest.

Safe Investments With High Returns

Safe Investments With High Returns

Are you looking for ways to have an additional income stream aside from your day job? Why not try investing your money? If you are hesitant because of the risk, there are safe investments with high returns for you to try. 

In an ideal world, investors look for investments that provide high returns and low risk. However, investments with high returns are often associated with increased risk and vice versa.

For investors to get the highest returns possible, investors need to take risks. That is challenging for inexperienced investors.

That is why you should match your risk profile with the product or company you consider for investment. That way, you can build yourself a money-making machine that will earn you continuous income.

To help and guide you in making the right choice, here are the best safe investments with high returns.

16 Best Safe Investments With High Returns

Here are some of the safe investments options with high returns that you can look into that would fit your risk appetite.

1. High Yield Savings Accounts

One of the investment options with the lowest risk is a high yield savings account. The Federal Deposit Insurance Corporation (FDIC) insures your money up to $250,000 as long as the deposit is in an FDIC-insured entity.

High yield savings accounts are great if you’re saving up for something big or if you’re temporarily storing the cash you earned with your high-income skills.

While a savings account isn’t necessarily an investment, you can earn a modest interest rate without risking your money.

One of the best savings accounts is with CIT bank. The bank has a competitive interest rate for most of its products. Their Savings Builder account pays interest of 0.40% APY. Remember that the interest rate may change according to the market condition.

2. Certificates Of Deposits

Certificate of Deposits (CD) are closely related to the savings accounts but have higher interests. The FDIC also insures Cds. That means they are practically risk-free.

Their advantage is that they are usually very liquid.

A CD requires an investor to commit to investing their money for a certain period ranging from one month to 10 years. If they access the cash before the period is over, they are penalized. You get compensated for the loss of easy access to your money with a better interest rate than your average high yield savings account.

3. US Savings Bonds

US savings bonds have one of the lowest investment risks. The US treasury issues the securities to fund the government’s operations. Saving bonds have a fixed rate of interest.

They can be divided as follows:

  • Series EE Bonds. These have a fixed rate of interest for a maximum period of 30 years. Their interest rate is usually set bi-annually, and therefore, you are assured of the amount of interest that the bond can accrue. These are usually long-term investments, and investors are penalized for redeeming them early.
  • Series 1 Bonds. These earn an interest based on a combination of a fixed rate and inflation rate. The fixed interest rate is usually set after buying the bonds, while the inflation rate is generally adjusted after every six months. These bonds have a five-year maturity period, and investors who withdraw before the maturity period is over are penalized.
  • Government Bonds. Government bonds represent debt that a government issues as a way to support its spending. Interest comes in a periodic payment over a set period of 1 to 30 years, with which you can have a steady stream of income.

4. Money Market Accounts

Money market accounts are closely related to savings accounts and CDs. They often have a better rate than the savings accounts but have more liquidity than CDs.

You might be allowed to write checks or use debit cards with the accounts, providing greater flexibility.

However, you are limited to six transactions a month in a money market account. When you exceed this, you will pay the penalty. Money market accounts are a good investment option for investors with money they might use infrequently or those who need a little flexibility with their savings accounts.

5. Municipal Bonds

Municipal bonds are loans issued to local governments by investors. These are usually a good option for better returns with slightly higher risks than savings accounts, CDs, or saving bonds.

There are no chances of the US government defaulting, and there are a few cases of major cities filing for bankruptcy. But like you would guess, it’s extremely rare for a major city to file for bankruptcy, and likewise, cases of municipal bond default are rare.

6. Money Market Funds

Money market funds are a kind of mutual fund investing in short-term debt instruments, cash, and cash equivalents. Money market funds or money market mutual funds offer a low level of risk with pay-out in the form of dividends.

Do not confuse money market funds with money market accounts, as these are two different things. Money market funds are sponsored by an investment fund company, while financial institutions offer money market accounts.

Money market funds provide investors with continuous income while protecting their principal investment.

7. Annuities

Annuities are simply insurance contracts. You pay a certain amount of money today, and you get a stream of income in the future. That is why annuities are best suited for retirees looking for a guaranteed income for life.

Annuities may be fixed or variable. With a fixed annuity, you will receive a fixed return on your investments, while in a variable annuity, your investment may fluctuate depending on the market. So the value tends to go up or go down.

Since annuities are an insurance product, guaranteed returns still depend on the insurance company’s health where you bought the annuity. Even presented with that risk, many individuals still accept that annuity can bring stability to their portfolios.

8. Investing In High Dividend Stocks

Many companies make dividend payouts to their shareholders quarterly, semiannually, or yearly. It’s possible to achieve some good returns by investing in companies that pay high dividends. However, you should ensure that you buy stocks in companies that make consistent dividends payments.

It would help if you considered the dividend yield of the company before making a buying decision. Also, find a big company with a long history of financial stability and low volatility. You might want to consider the elite dividend aristocrats group (NOBL) with the most reliable income. 

9. REITs

Real Estate Investment Trusts (REITs) are a good way of spending money in real estate without investing thousands of dollars as a property owner. REITs provide a dividend that is above average and generally offers good returns over time as the value of property increases.

Begin by researching REITs that buy property in an area of interest. When you’ve earned some money, for example, through flipping things for profit, you can use that to start investing in REITs.

The majority of REITs are registered with the SEC and listed on the public exchanges. These are publicly traded REITs. On the other hand, private REITs aren’t registered with the SEC and aren’t listed on a public exchange.

10. Real Estate Crowdfunding

With real estate crowdfunding, you pool together money with other investors to invest in properties. When an investor identifies an investment opportunity, they may not have the ability to execute the project.

There are usually three players in crowdfunding real estate. These are the sponsor who plans and looks at the entire investment, the platform where the sponsor seeks investors and the investors who contribute capital in exchange for a part of the profit.

Becoming an investor in a real estate crowdfunding project can provide some good returns even though it has a substantial element of risk.

11. Corporate Bonds

Just like governments, corporations also issue bonds to fund their expansion plans. When you buy a corporate bond, you lend money to the issuing company that, in turn, commits to pay interest on the initial capital plus interest on maturity. Corporate bonds have bigger interest rates than government bonds. They offer investors the ability to invest in different sectors with an option to cash out before maturity.

While this is a relatively safe investment, it also has an element of risk. Compared to treasury bonds, corporate bonds are riskier, as corporations experience bankruptcy more often than governments. However, if you stick to the blue-chip public companies, it’s possible to stay safe.

12. Exchange Traded Funds

One of the downsides of the stock market is that it is very volatile, and the possibility of losing your investment is always present. One of the reasons that keep people out of the stock market is that they fear losing their investment.

Fortunately, Exchange Traded Funds offer investors a good diversification option. Exchange-Traded Funds, or ETFs, is a basket of investments that you can buy and sell on an exchange. ETFs are traded similarly in the same way you trade shares of stock. ETFs shares are traded daily in which prices can change depending on the supply and demand and stock market hours.

Unlike mutual funds, ETFs require less minimum investment than mutual funds. So, if you don’t have enough money yet, you can go for ETFs since they provide many different assets and offer a diversified portfolio for investors.

13. Peer-To-Peer Lending

Peer-to-peer lending (P2P) is when you have enough cash and lends it to a borrower against a good interest. Individuals choose to borrow money from P2P instead of a traditional bank since it is a more accessible funding source than a conventional financial institution.

P2P lending generally provides high returns for the investors, and it will also diversify your investment portfolio. However, this kind of investment is not secure, especially if the borrower defaults on their loan. It is important to know the different levels of risk associated with the loan, so you know what to expect and how much risk you can take.

14. Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) can be a great hedge against inflation. While they pay lower interest than what the normal treasury bills of the same length pays, the principle increases or decreases in value depending on the prevailing inflation rate.

TIPS can be an excellent option for investors with money they may not need before the bond’s maturity. The FDIC insures any deposits up to a total of $250,000.

15. Growth Stock Funds

Growth stock funds invest in a wide range of growth stocks instead of the single growth stock. This ensures that the risk of a single growth stock falling and hurting the whole portfolio is low.

With this investment option, you don’t need to evaluate and choose individual growth stocks. Instead, the fund is managed by expert managers who select particular growth stocks.

Growth stocks are a good choice for diversifying your portfolio. They are highly liquid, and you can put in or remove your money as you wish.

16. Rental Housing

One of the best long-term investment strategies is the buying and holding of real estate. It’s especially a good choice for buy-and-hold investors who would like to build wealth before retirement. For example, Grant Cardone’s net worth was mostly built through real estate investing.

Inflation benefits the rental housing market as it increases the value of the asset. In many neighborhoods, homes usually appreciate at 1.5 times the rate of inflation. While the capital of investing in a housing property is high upfront, you will not lose your whole investment since it’s a physical asset. This is why real estate is a high return but lower risk investment.

The only downside of a rental property is that it’s among the least liquid investments. If you would like to recoup your cash, you will need to sell. Luckily, keeping the property is one of the best ways of generating passive income.

Conclusion – Best Safe Investments With High Returns

When you’re investing, there is always some risk involved. But to grow your money, you need to take some risks.

Educating yourself manages the risks involved in investing your money. So, do your research when investing in these products, and you will be able to reap the rewards consistently.

The key here is understanding what investments are available to you and which one best matches your risk appetite. Always remember that successful investing is about managing risk and not avoiding it. So tread carefully and enjoy your investment ride.

This post originally appeared on SavoTeur

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